Say it's a world where most people are at least aware that magic exists, and that some magicians can do things that would destabilize a real-world economy. How would economists, legislators, and law-abiding magicians plan around such magic?

I've thought of a few solutions (replace it with an element that's hard to transmute or drop it for a currency that's complicated to manufacture, forbid it with punishments that outweigh the risks...), but I'm hoping for magical solutions to this magical problem.

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    $\begingroup$ Welcome to the site, at the moment this question is likely to be closed as it is opinion based. You should try and describe what magic can and can't do to give people a framework to base their answers off. At the moment the easiest answer is just to say that a spell exists that prevents the coins being counterfeited or something like that. If you need help check the help center and take the tour. $\endgroup$ – Bellerophon Nov 14 '19 at 20:41
  • $\begingroup$ In any world where this was possible they usually have a magic spell called "detect magic" which shows the aura of something created by magic. $\endgroup$ – Vogon Poet Nov 14 '19 at 23:04
  • $\begingroup$ Please note that the magic tag specifically requests you provide details of your magic system. Without that, asking for a magical solution to a magical problem that is consistent with the rules of your universe is impossible. $\endgroup$ – Frostfyre Nov 15 '19 at 4:20

If you can't beat them, join 'em

I know this sounds weird, but you really shouldn't be worried about money. It's the material goods themselves which are problematic. Why would a transmuter care about copying money when its illegal and dangerous when he could just copy things worth money? Let's say you decide that gold makes the coin of the economy, and transmuters can't transmute gold. That doesn't solve the problem, because then the transmuters will just corner the iron market and make money there. Or the coal market. Or really, just any market with a material good.

So then you've got a problem, but you also have a solution. If the transmuters are complicit, then you'll never really suffer from material goods shortages. So all you need to do is just have transmuting be a perfectly normal profession. Maybe have a steep licencing fee, to make money and to make sure that not everyone tries to become one. But, honestly, fighting them is a losing battle. Just embrace them and let the rest of your economy become a service-based economy, rather than a good-based one.


Change your economic model

In a modern world, you just don't have cash, only card payments are accepted. All fiat money is just numbers in a computer and largely immune to replication in that style. The question is really how you get to electronic fiat currencies when you can't pass through commodity currency along the way.

The thing is that you can, but your model for what has value is different.

Gold and silver largely have value simply because of their scarcity, but if they can be easily replicated by a mage then they no longer have that value. A commodity will only have value if it has both reasonable scarcity and industrial value. Steel and aluminium become more valuable than gold because people consume them. You also end up trading in potatoes and eggs. Less portable but it doesn't matter if they're replicated as you still get your omelette.

It's not quite barter, but it ends up a lot closer than gold and silver coins.

(Anyway, everyone knows magically created gold disappears in the morning.)


Magic IS the Currency

The easiest answer to your question, that prevents any sort of counterfeit from ever occurring, is for the currency to be magic itself. This draws parallels to our modern world cryptocurrency, which is generated by using computers and energy to create new currency.

The magic could be stored into small 'coin' containers, with the worth of the currency being dependent on the quantity of magic.

The currency can then be used to benefit the society itself, with the energy from the currencies powering vehicles, devices, weapons, etc.

To counterfeit the currency means to spend something, maybe energy, lifeforce, time, to duplicate it; if the magicians decide to 'inflate' the economy by introducing new currency, they can only do so at cost to themselves, but this only serves to benefit the society rather than harm it.

  • $\begingroup$ This is basically how the Stormlight Archive handles the issue, where the currency is gems which hold magic. $\endgroup$ – Hink Nov 14 '19 at 21:50

Magical detection.

It's a lot easier to magically notice and confirm that e.g. a piece of gold has been transmuted from something else, than it is to transmute it in the first place.

More sophisticated magic can trace with high (or high-ish) confidence who did it, analogous to fingerprint analysis or tracing bullets to guns in our real world.

As in the real world, states are serious about catching and punishing counterfeiters.

"You will never Transfigure anything that looks like money, including Muggle money," said Professor McGonagall. "The goblins have ways of finding out who did it. As a matter of recognised law, the goblin nation is in a permanent state of war with all magical counterfeiters. They will not send Aurors. They will send an army." "I will never Transfigure anything that looks like money," repeated the students.

-Harry Potter and the Methods of Rationality


If it's that easy to transmutate or conjure up stuff, then that stuff doesn't become currency. In your world, easy gold means no one uses gold for money. Heck, if everything is that easy, you'll likely have to think in terms of a post-scarcity economy (think Star Trek and replicators).


Magic is expensive

I have a setting where gold is valuable because it must be consumed to create any magical effect. If creating a ton of iron magically costs significantly more gold than buying and transporting that ton of iron, then no one need to worry about the economic impact: no one could make money off that, so it will never be done at scale. Magic is useful for its flexibility, but mundane methods are always more cost effective.

Magic is constrained by economics

In economic theory, prices are determined by "general equilibrium" which depends on the quantities supplied and demanded for any commodity, as well as the exchange ratios to other commodities.
- In a world where magic is constrained by principles like "equivalent exchange" in an economic sense (what in economics we'd call a "no arbitrage constraint"), there's no direct way to make money off of magic (though there might still be a somewhat lucrative business turning 500 dollars of iron into 499 dollars of gold, for example).
- If magic has myriad of hard to detect indirect effects, it could sterilize the economic impact of each casting. The simplest example is "creating" a pile of gold coins really just skims a bit of gold coins off every other pile of gold coins in the world. Total supply of gold remains the same, so prices will stay relatively stable. However since it adversely impacts the rich, they will collectively spend a lot of money hunting down anyone who might cast a spell like that.

Magic is above the mortal economy

If magic users can create a million tons of gold per day, and trading only with other magic users consuming a million tons of gold per day, it doesn't really impact the mundane users' economy. Nothing a mundane user does will ever be relevant to the magic users who are effectively gods.


The economy isn't as fragile as you think

First (although this depends on your setting), Economies are big. For a single magic user to be able to "destabilize" the system would be extremely difficult, no matter how powerful they are and even if they did start cloning coins or whatever, it wouldn't be a big problem.

For example, in our modern-day economy, certain people are akin to your "magicians" as they are gifted from birth with the ability to generate money out of thin air. They're called the wealthy. While this is a gross oversimplification, if you're wealthy, you can easily make money by essentially doing nothing (making safe investments and then watching the money grow). These wealthy people don't break the economy, why should your magic users do so?

Also, the government regularly preforms this trick IRL too. Most people think that taxes are what the government uses to fund things but really that's not completely true. When the federal government wants more money, they can access specific computer terminals and simply generate some new USD and use it for whatever.

Practically, this means all your wizards are rich.

If you're interested in how governments simply make more money, listen to this.

  • $\begingroup$ You're right these are oversimplifications, but also inaccurate. There's a difference. $\endgroup$ – Dehbop Nov 18 '19 at 9:39

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